Africa: Zimbabweans fear return of 2008 economic strife
Just a week after Zimbabwe's Minister of Finance Mthuli Ncube and its Reserve Bank Governor Dr John Mangudya announced new fiscal and monetary policies, prices of basic commodities have soared in Zimbabwe and the black market rate of the US dollar to the bond note rocketed to more than 300% and continues to rise.
Zimbabweans are once again panic buying following changes to the country's fiscal and monetary policies which have seen an increase in taxation and makes provision for people to hold separate accounts for US dollars. According to the new policy, taxation on electronic transactions has changed from five cents per transaction to two cents per every dollar transferred electronically. This is aimed at taxing the informal sector. But the move has sent ordinary citizens into panic mode, with residents buying whatever they can lay their hands on amid fears stocks could run out as retailers speculate on prices and withhold the most basic of commodities. Some shops and tuck-shops in Harare's city centre and in high density suburbs closed their doors while others that are still operating were demanding payment in US dollars and refusing to accept bond notes, mobile money transfers and bank transfers. Those that remained open, including major supermarkets such as Thomas Meikles (TM), Pick n Pay, Food World and OK Zimbabwe, had no cooking oil, sugar and other basics. Cooking oil was being sold on the black market for prices between $12 and $15 for a two litre bottle. Fuel has run out at some petrol stations while those that still have petrol are inundated with motorists who are willing to spend hours queuing for fuel. Some motorists have resorted to buying fuel on the black market at $3 per litre. Zimbabwean bases economist Eddie Cross, writing in his blog, noted that inflation in the country had already hit more than 50%, and said this was as a result of the country’s fiscal deficit which was out of control. He said the monetary and fiscal policies had confirmed the long held fears that Treasury bill stocks had risen by billions of dollars in the past three years, with domestic state debt now exceeding foreign debt. Interest payments, Cross said, were unaffordable and worst of all, the government overdraft at the Reserve Bank was 3.5 times the legal limit. The decision by the minister to recognise the existence of a local currency in the form of the so called Real Time Gross Settlement (RTGS) and the Bond Notes and Cash Coins was overdue. “It is now formal – there is no link between our bank balances and the hard currencies that are circulating. We all knew that a long time ago – the fact that the rand and the US dollar have vanished from our markets is ample testimony to that,” he said. Cross said that the country is either at or beyond hyperinflation levels already (50% plus per annum) and this reduces disposable incomes by the same amount unless our employers have increased salaries. “As any decent economist will tell you, printing money, in whatever form, can only lead to hyperinflation and monetary collapse,” Cross added. Zimbabwe Congress of Trade Unions (ZCTU) President Peter Mutasa said the economic measures would worsen the plight of workers and Zimbabweans in general. “The new measures, instead of solving the economic crisis that the country faces, increase taxation and fail to find solutions to the cash crisis and the high price of goods and services,” he said. The 2% tax on every dollar on all electronic transactions, he said, had a direct effect of overburdening the already overtaxed and underpaid workers. “We are chiefly frustrated with the policy directive of separating the Foreign Currency Account (FCA) from the Real Time Gross Settlement (RTGS) accounts which amounts to treachery by the monetary authorities who assured account holders that the US dollar was equal to the bond note. Workers and individuals who had earned their salaries in US dollars are bound to be prejudiced by the distinction of accounts,” Mutasa said. Salary distortions and erosion of workers' contributions that were made in US dollars from 2009 and mortgages hovering over, he said, had created serious uncertainty among workers reminiscent of the 2008 savings plunder whereby investments and pensions were eroded. The year 2008 will go down in the history of Zimbabwe as one of the most difficult years the country experienced, symbolised by record inflation and the starvation of thousands of Zimbabweans. Then the country's inflation rate was estimated at 79.6-billion percent and was attributed to the over-printing of money by Zimbabwe's central bank. The figure was, however, difficult to measure as the government, under the leadership of Robert Mugabe, had stopped filing official inflation statistics. Millions of nationals flocked to neighbouring countries where they sought economic and political refuge; and many remain there doing menial jobs to eke out a living. The situation began to improve with the coming in of a government of national unity in 2009. And now the soaring commodity prices, cash crisis and the expensive use of plastic money, for which some shops and other service providers charge a significant percentage have brought fears among the citizenry of a return to the 2008 era. “Basic commodity prices are going up every day and the rate of the US dollar to the bond note has ballooned up to 300%. What that means is a lot of suffering for ordinary people,” said Raymond Chaora, a Harare based resident. Chaora said at the pace at which prices were going up, it was almost certain the country was headed towards even more difficult times reminiscent of the 2008 era. “We are certainly headed for another 2008, but this time it is going to be worse especially because the government is not allowing people to fend for their families through informal activities like vending,” he said. Another resident, Justin Jaji said the introduction of the 2% tax was daylight robbery, adding that the government should instead, look at alternative ways of raising money instead of milking the already burdened citizenry. “People are already losing a lot of money through mobile money transfer agents who are charging up to 30% tax on money transfers and for the government to now demand two cents for every dollar transacted is sheer cruelty,” he said. Zimbabwe Congress of Trade Unions (ZCTU) National Organiser, Michael Kandukutu said it was not fair for the government to seek to address the domestic debt issue by taxing citizens who had nothing to do with the debt. “They are stealing from the poor; first they tell us to use plastic money and then they follow us and tax us while we use the plastic money; so what it means is that they want us to use cash which is not available,” he said. The ZCTU has announced that it will hold demonstrations on Thursday to protest the new policy measures despite a demonstration ban being enforced by the police who cite the cholera outbreak as a reason for the ban. DM